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Hand Back Your Bonus, Jim

Posted on: September 14th, 2007

Leinster House remained a lonely post-election graveyard last week. But I spotted two noble political ghosts: Pat Rabbitte, who recently resigned as leader of the Labour Party, was back at work. Des O’Malley, who less recently resigned as leader of the Progressive Democrats, was doing a bit of research.

What are these two guys, who voluntarily left their political posts prematurely, going to do next? Any ambitious business should kill to entice them onto its board. O’Malley was never offered the break in business his talents deserved. Rabbitte is even less likely to be invited to join the boardroom circuit.

What a puzzle. Both men have retained their razor sharp critical faculties. Well, that could be the problem. Not such a puzzle.

Both held economic posts at the Cabinet table. Both made a career out of challenging the consensus. Both resigned their jobs in their prime, when they felt the time had come. Such talent will exclude a candidate from the board of many Irish public companies.

In any case there are no vacancies. There are never any vacancies in Irish public companies. The vacancies are filled behind closed doors before they become available. Resignations are rare.

If I was asked to place a bet on a high-profile resignation over the summer holidays, I would never have put my shirt on Rabbitte. I would have bet my bottom dollar that Jim Flavin, boss of DCC, would be gone and that the Labour Party leader would soldier on for another year or two.

The opposite has happened. Flavin, the battered businessman, is apparently destined to serve out three more years. Rabbitte, the politician, is gone.

Jim Flavin of DCC should have resigned on the spot after the Supreme Court dismissed his insider dealing defence at the end of July.The Supreme Court found against him — unanimously: he had dealt in Fyffes shares while holding price sensitive information. Yet he is clinging to office.

It gets worse. Jim’s chairman, Alex Spain, was finally stepping down after 30 years.Who would replace him? Perhaps there would be an election? An independent outsider to keep Jim in his place? Cynics predicted that Alex’s successor would be a patsy of Jim’s. The cynics were confounded. No patsy was selected. The name of the successor was breathtaking. His name: Jim Flavin.

Not only did the chairmanship now fall to Jim. He retained the chief executive’s job too. Jim ascended to the post of executive chairman, a corporate supremo. All courtesy of his agreeable directors. The post of executive chairman is contrary to corporate governance codes. It puts too much power in the hands of one man.

The practical reason is obvious: what happens if there is a case for dismissal of the chief executive? The shareholders seek out the chairman.

After the Supreme Court’s finding, Jim’s position as chief executive was more than questionable. Normal companies would look to the chairman for a lead. Not quite so simple when they are the same person. And they were.

The DCC board rallied to the supremo. They expressed confidence in Jim and rubbished the verdict. Was this the same board that awarded Jim a special bonus last year? His ordinary bonus was €500,000. But they had added a special bonus of €150,000 after his first leg High Court victory “in recognition of the exceptional demands arising from the successful defence of the action taken by Fyffes against DCC”!

In 2007 they gave him another €37,000 for the same reason. Such hubris, even before the final Supreme Court verdict.

Perhaps now that Jim’s defence is not so “successful”, but in tatters, the board will demand that he gives the shareholders back their money.

Hardly. The board wagons are circled. Wagons like Tony Barry, formerly of the Bank of Ireland, Maurice Keane, formerly of the Bank of Ireland, and Roisin Brennan, currently of the Bank of Ireland, will keep their heads down.

Jim’s wasted bonus is bad enough. But the cost of the court case is worse. There may be no change out of €100m from the lark in the Four Courts. DCC is liable for the costs of at least €25m. Fyffes are seeking €85m in damages.

Worse still, the judgment has undoubtedly aroused the interest of the taxman. Even the High Court found that the Dutch vehicle used to sell the DCC stake in Fyffes was a sham. It was devised to avoid tax. Justice Laffoy described as “an absurdity” Flavin’s claim that he did not control the sale of the shares but that the Dutch vehicle was the manager. DCC could now owe €30m in tax and penalties.

Jim Flavin is beginning to look like a liability. Still the directors are standing behind him. The DPP is looking at the judgment. So is the Director of Corporate Enforcement.

Still the directors are standing behind him.

Class actions are rumoured from the poor suckers who bought the shares which Jim sold while he was in possession of price sensitive information.

Still the directors are standing behind him.

But even more lethal to the executive chairman is the current performance of the company. Critics, rather than enemies, are emerging. The DCC share price is falling, down 30 per cent from its high as the market fears the worst: that Jim is determined to stay on – despite the Supreme Court, despite the ridiculous bonus payments, despite his cock-up on Manor Park Homes where developer Liam Carroll is twisting Jim on a spit.

Time for businessman Jim to learn a lesson from noble politicians like Pat Rabbitte and Des O’Malley.